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Facebook stumbles amid campaign data scandal but don't count it out

Mark Zuckerberg’s photo from his facebook page Sept 24, Sunday. “Traveled all the way to Philadelphia for the best cheesesteak in the land _ at The Original Pat’s King of Steaks.”

Facebook

Facebook's stock-market value has dropped as much as $50 billion since last week's exposure by the New York Times and the Guardian about how hedge-fund mogul Robert Mercer's data-based consulting company, Cambridge Analytica, raided the social-media giant for personal data to target millions of users in the 2016 presidential elections without permission.

David Magerman, the Main Line data scientist, school philanthropist, and restaurateur, blew a whistle on Mercer's agenda in my column last year. Magerman lost his millions-a-year job at Mercer's giant hedge fund, Renaissance Technologies, after warning that Mercer insisted that Donald Trump use Cambridge Analytica "to get unpopular initiatives (like electing Donald Trump) through the electorate."

What's next? Investor lawsuits are piling up. "What has happened to Facebook bears strong resemblance to the Equifax data breach, the inappropriate actions at Wells Fargo, the explosion of the rig in the Gulf of Mexico operated by British Petroleum, the accelerator controversy at Toyota, and the false [diesel-emissions] claims at Volkswagen," writes Jim Meyer, chief investment officer at the $1 billion-asset Tower Bridge Investments, West Conshohocken, in a note to clients of Boenning & Scattergood.

"In each of these episodes, the company in question may or may not have broken laws, but in all cases, there were clear lapses in oversight at a minimum," Meyer writes. "… Each of these incidents is reputation damaging, but in the long run, companies can and usually do regain trust. Very few of us are staying away from Toyota because an accelerator may or may not stick inadvertently, and we are more than happy to buy gas at a BP station if the price is right."

Similarly there are no early signs of users mass-abandoning Facebook.

But Facebook will likely face pain — "enhanced government scrutiny" and forced changes in its business practices, Meyer adds.

Already Facebook has "lost control of the story," he says. "… The worst, from an image standpoint, will occur on the day that Mark Zuckerberg and Sheryl Sandberg sit down before Congress and get lambasted 15 minutes at a time by senators and congressmen who get their moment in the limelight to demonstrate their outrage."

Meyer is skeptical that Facebook boycotts will amount to much: "Facebook isn't going away. It is too entrenched in too many people's lives." If you gave Facebook your birthday and your children's names, that information is already being exploited, and young people no longer expect that stuff to be private.

But "that doesn't mean Facebook is home free. Quite the contrary," Meyer says in his note. "If Facebook was lax in allowing Cambridge Analytica to use and retain its data improperly and contrary to a consent decree it signed with the FTC [in 2011]," it's in for heavy-duty government scrutiny.

Unlike the news stories posted by this newspaper, Facebook and other social-media companies don't control their content, Meyer adds. "They can, however, police their sites and remove harmful posts, and they can close accounts that abuse their agreement to use the media site properly."

Monica Peart, senior forecaster at eMarketer, estimates that Google/YouTube and Facebook/Instagram will gain just under half of new digital ad spending in 2018, down from more than 70 percent in 2016. Indeed, Facebook is no longer gaining market share, though Instagram is still picking up advertisers faster than the internet as a whole.